Tax Reform Proposal Won’t Help Most Small Businesses

Statement from Small Business Majority Founder & CEO John Arensmeyer on why today’s tax reform proposal will increase the deficit while doing little to aid small businesses

While the tax proposal released today by Republican leadership is being touted as a boon for small businesses, the reality is that it will not actually benefit most Main Street businesses. This is why we need lawmakers to focus on a bottom-up approach that will help all businesses, as well as level the playing field so small business owners are not stuck footing the bill when large corporations take advantage of loopholes and avoid paying their fair share. Unfortunately, today’s tax proposal does not address those issues.

Indeed, cutting the top individual rate from 39.6 percent to 35 percent and the top pass-through rate to 25 percent will help very few small business owners. It is a myth that top individual tax rates adversely harm Main Street small businesses. In fact, the current top rate is paid by less than 2 percent of pass-through business owners. Nearly 9 in 10 businesses that pass through their income already pay at the 25 percent rate or less. Instead, this proposal would primarily help Wall Street hedge fund managers and wealthy lawyers rather than small businesses.

While cutting the corporate rate to 20 percent would help some small business owners, doing so without getting rid of corporate tax loopholes would greatly increase the deficit, and continue to put small businesses at a disadvantage. Instead, we recommend reducing the nominal corporate tax rate to 28 percent, thus reducing the actual tax rate for most C-Corp small businesses, while eliminating unfair, inefficient tax loopholes in a manner that ensures a net revenue increase to bring down our deficit and fund key programs.

What’s more, we oppose the proposal to move to a “territorial” system from a “worldwide” system because it would allow only a select few large multinational corporations to game the system by funneling their profits to the lowest-taxation foreign jurisdictions. The repatriation proposal fails to address the substantial tax advantage given to big businesses because it would not do away with the loophole that allows multi-national corporations to defer paying taxes on foreign profits. This loophole costs the U.S. Treasury Department more than $1 trillion over 10 years. What’s more, Small Business Majority’s polling found 90 percent of small business owners believe that U.S. multinational corporations’ use of these loopholes to shift U.S. profits overseas is a problem.

These tax proposals are being billed by many as “small business tax cuts,” but as the research shows, they won't actually help the vast majority of small firms. This is why we need to support small businesses from the bottom up rather than the top down.

Lawmakers have a rare opportunity to make our nation’s tax code better for small businesses, but they are not off to a good start. If policymakers really want to help small employers, they need to enact reforms that will truly benefit small firms instead of giving yet another tax break to those who need it least.

About Small Business MajoritySmall Business Majority was founded and is run by small business owners to ensure America’s entrepreneurs are a key part of a thriving and inclusive economy. We actively engage our network of more than 55,000 small business owners in support of public policy solutions and deliver information and resources to entrepreneurs that promote small business growth. Our extensive scientific polling, focus groups and economic research help us educate and inform policymakers, the media and other stakeholders about key issues impacting small businesses and freelancers. Learn more about us on our website and follow us on Twitter, Facebook and Instagram.